Impact. Transform. Improve.
2014 Annual Report
1
Fiscal year 2014 was a truly
transformational year for AECOM — and the future of the engineering and construction industry.
During the year, AECOM announced the combination with URS, which closed in the first few weeks of the current fiscal year, and began laying the groundwork for the firm’s integration process. With URS on board, the new AECOM — which has nearly 100,000 employees serving clients in more than 150 countries — is nearly twice as large by measures such as revenue and employees and has unsurpassed design, build, finance, and operate capabilities to serve clients on a global basis.
In addition, during fiscal year 2014, AECOM announced the acquisition of stadium construction management leader Hunt Construction Group, complementing AECOM’s strength in the design of sports arenas and venues, and hospitality-industry facilities, Spain-based international development firm ACE International Consultants S.L. Aligned by a common purpose — to positively impact lives, transform communities and make the world a better place — AECOM employees dedicate themselves to delivering solutions that draw upon its combined global expertise and local knowledge as we bring opportunity, progress and vitality to the communities in which we
Impact. Transform. Improve.
Growth and financial performance
During fiscal year 2014, AECOM delivered solid results, meeting the evolving needs of its clients, supporting the professional development of its employees and strengthening its standing as a valuable investment. The company continued to expand its services — while advancing its organizational structure and capital- allocation strategy — to remain a trusted partner to clients, a great place to work, and a results-focused business for shareholders.
Despite uneven macroeconomic trends, the firm advanced toward its long-term financial and operational goals, while strengthening its competitive position.
AECOM’s diversified services, paired with its global execution capabilities, are critical factors in the company’s ongoing success in construction services, its international design business and its management support services segment.
This success, combined with the company’s demonstrated commitment to meeting clients’ evolving needs, positions AECOM well to capitalize on future opportunities. For fiscal year 2014, the firm recorded US$13.8 billion in new wins. This contributed to a backlog of US$25.1 billion, representing 52 percent total growth and 33 percent organic growth.
AECOM’s capital-allocation priorities
value and organic growth during fiscal year 2015. The firm generated US$298 million in free cash flow during fiscal year 2014 — a non-GAAP measure equal to cash flow from operations of $361 million less capital expenditures of $63 million. AECOM’s near-term priority is to deploy cash to pay down debt. As communicated during its earnings calls, AECOM expects free cash flow of the combined organization to be quite strong, with debt expected to be paid down to approximately two times debt to EBITDA by the end of 2017, compared with approximately 4.5 times at the close of the URS combination.
AECOM also expects to deliver on its synergy targets related to the URS transaction, having increased its initial guidance of US$250 million in synergies to US$275 million.
2
Designing for success
Ethics and integrity
Now that the combined firm is operating as one company under the AECOM brand, we have implemented an operating structure that reflects the strength of both companies and positions us to successfully meet the design, build, finance and operate needs of clients globally.
AECOM’s three reported segments are Design and Consulting Services;
Construction Services; and Management Services. In addition, AECOM Capital continues to support its integrated-services platform and differentiate its competitive offering through direct investments in real estate and public-private partnerships. Through the end of fiscal year 2014, AECOM Capital had committed $150 million to 13 projects that have driven approximately $1 billion in Construction Services backlog.
There are very few companies in the world that can execute at the scale and technical level that AECOM is known for delivering, and its capabilities are enhanced with this new structure.
AECOM remains dedicated to sustaining a high-performance, engaging work environment that reflects the shared cultures of a long legacy of industry- leading firms. The company’s core values — people, clients, excellence, safety, innovation and integrity — are paramount to AECOM’s continued success.
Through ongoing, transparent partnerships with all stakeholders, AECOM builds trust, which is a fundamental ingredient for long-term success. While business results are a critical measure of this success, how employees achieve those results is every bit as important. For this reason, the firm’s reputation of trustworthiness and integrity has resulted in accolades such as being named one of the World’s Most Ethical Companies by the Ethisphere Institute for four consecutive years, and being recognized by the New York Stock Exchange Governance Services as a finalist in the “Best Governance, Risk, and Compliance Program at Small to Mid-Cap Company” category.
3
Impacting communities
AECOM understands that aligning business values, purpose and strategy with the social, environmental and economic needs of all stakeholders creates a competitive advantage for the company. Corporate social responsibility (CSR) encompasses many areas — from good corporate citizenship to business imperatives such as integrity, safety, governance, sustainability and other components.
CSR is viewed as the collective energy and effort of the company and its employees to benefit society and the environment through the contribution of labor, financial support and facilities as well as social and community networks. That’s why, in an effort to transform the world around us, the heart of AECOM’s CSR program focuses on impacting communities and improving the lives of the people it touches every day.
AECOM and its employees have a rich history of contributing to society and the environment by supporting pro- bono, philanthropic and charitable activities in the places where they work and live.
During 2014, employees logged thousands of volunteer hours helping
disadvantaged communities through groups such as Engineers Without Borders, Water For People, Just a Drop, the International Committee of the Red Cross and its affiliates around the world, the Maasai Wilderness Conservation Trust, the Wounded Warrior Project, the Yellow Van Food Rescue, the Sabre Charitable Trust and the construction and property industry’s charity for homeless people (CRASH), as well as natural-disaster-relief efforts and a variety of other philanthropic organizations around the world.
AECOM also reaffirmed its commitment to helping those in need during critical times by providing relief efforts for those affected by the Oso landslide, earthquakes in China, devastating floods in the Western Balkans, and other disasters. As an example, during the flooding in the Western Balkans, AECOM employees already working in the area responded immediately by participating in on-site flood-protection activities across the region. AECOM employees also showed their support through fundraising activities across Europe and Asia to help residents resume to normalcy. The company matched staff donations to the Red Cross Disaster Appeal.
With a vision of contributing to a more- sustainable future, AECOM employees incorporate sustainability as part of their integrated solutions, enabling clients to secure business continuity, reduce their impact on the environment, and improve the lives of the project’s end users. AECOM defines sustainability as helping clients, society and the firm address complex challenges by managing financial, natural, social and human capital, with minimum risk. Examples of these efforts include:
- The Masdar Siemens Headquarters in Masdar City, Abu Dhabi, is the first Leadership in Energy and Environmental design project in the United Arab Emirates with a Platinum rating.
- AECOM was selected as a finalist in the
“River of Life” competition to further develop the company’s initial master plan submission to rejuvenate the Klang River and its surrounding area into an iconic waterway — facilitating the continued growth of Kuala Lumpur, Malaysia.
- AECOM employees analyzed the potential long-term implications of climate change and population growth on the Federal Emergency Management Agency’s National Flood Insurance Program in the United States.
- The firm’s work on South Africa’s Strumosa Urban Agriculture and Waste Education Centre incorporates an interconnected system optimizing the use of waste and water to create jobs, improve the livelihood of local community members and boost the country’s economy in the long term.
- Australia’s Townsville Port Access Road aims to support significant regional economoic development during the next
Developing a
sustainable future
4
Safety for Life
Safety is an essential part of AECOM’s DNA. That’s why its definition of safety — one of the firm’s core values
— encompasses everything from how employees work inside the office to every decision made on a project site. This includes maintaining a healthy, vibrant workplace; protecting facilities, property, equipment, the environment and, most important, people — such as employees, clients and the end users of AECOM’s work.
The firm’s safety commitments are outlined in its Safety, Health and Environment (SH&E) Policy Statement and Life Preserving Principles. The policy statement establishes and maintains a framework for the firm’s overall SH&E program and drives operations to proactively incorporate these safety standards into all aspects of the business.
First introduced in 2013, AECOM’s
“Safety for Life” program has played a crucial role in strengthening the company’s deep SH&E culture.
This “Culture of Caring” means that employees are always watching out for others and gently pointing out when
anyone is at risk — taking responsibility for the safety of their colleagues and ensuring everyone returns home to their families in the same condition that they arrived for work. The program also features processes and tools such as comprehensive online training and management system assessments, regular communications, and company- wide recognition of programs such as the United Nations’ World Day for Safety and Health at Work.
As a global company, AECOM addresses the differing needs across varying countries with regional safety leaders who ensure that safety remains a priority everywhere. All applicable safety rules and regulations are followed, and employees are encouraged to make
recommendations for improvements.
Following are some highlights of AECOM’s 2014 safety successes:
- Total recordable injury rate, a measure of the frequency of all work-related
injuries and illnesses, reduced by 61 percent.
- The Gold International Business Award (IBA) for Health, Safety & Environment in the Middle East and Africa — following last year’s achievements, where the firm won two IBAs for safety in Asia, Australia and New Zealand, as well as Canada and the U.S.
- The Royal Society for the Prevention of Accidents’ Gold Medal Award — for receiving nine- consecutive gold medals for occupational health and safety.
- Five Industry Leader Awards from the U.S. National Safety Council (NSC) for outstanding safety achievements measured by lowest total incidence rate and employee work hours. Since 2010, AECOM has received this recognition from the NSC 18 times.
AECOM continues to utilize innovative processes, procedures and tools to safely deliver some of the world’s most challeng- ing projects. The firm remains committed to becoming the industry SH&E leader as well as achieving its ultimate goal of zero work-related injuries and/or illnesses as it strives to transform industry standards.
Markets
Buildings + Places Civil & Infrastructure Industrial
National Governments Oil, Gas & Chemical
Our capabilitites Services
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2014 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to Commission file number 0-52423
AECOM TECHNOLOGY CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 61-1088522
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1999 Avenue of the Stars, Suite 2600 Los Angeles, California 90067
(Address of principal executive offices, including zip code) (213) 593-8000
(Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered Common Stock, par value $0.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller reporting company’’ in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The aggregate market value of registrant’s common stock held by non-affiliates on March 28, 2014 (the last business day of the registrant’s most recently completed second fiscal quarter), based upon the closing price of a share of the registrant’s common stock on such date as reported on the New York Stock Exchange was approximately $1.8 billion.
Number of shares of the registrant’s common stock outstanding as of November 5, 2014: 153,821,746 DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Page
ITEM 1. BUSINESS . . . 2
ITEM 1A. RISK FACTORS . . . 14
ITEM 1B. UNRESOLVED STAFF COMMENTS . . . 32
ITEM 2. PROPERTIES . . . 32
ITEM 3. LEGAL PROCEEDINGS . . . 32
ITEM 4. MINE SAFETY DISCLOSURE . . . 32
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES . . . 33
ITEM 6. SELECTED FINANCIAL EQUITY DATA . . . 36
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . 37
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . 62
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . 63
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . 119
ITEM 9A. CONTROLS AND PROCEDURES . . . 119
ITEM 9B. OTHER INFORMATION . . . 120
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . 120
ITEM 11. EXECUTIVE COMPENSATION . . . 120
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS . . . 120
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE . . . 120
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . 120
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES . . . 121
PART I ITEM 1. BUSINESS
In this report, we use the terms ‘‘AECOM,’’ ‘‘the Company,’’ ‘‘we,’’ ‘‘us’’ and ‘‘our’’ to refer to AECOM Technology Corporation and its consolidated subsidiaries. Because this report relates to a period ending prior to the consummation of our acquisition of URS Corporation, except as expressly noted, this report, including the discussion of our business below, does not give effect to the URS acquisition. Unless otherwise noted, references to years are for fiscal years. Our fiscal year consists of 52 or 53 weeks, ending on the Friday closest to September 30. For clarity of presentation, we present all periods as if the year ended on September 30. We refer to the fiscal year ended September 30, 2013, as ‘‘fiscal 2013’’ and the fiscal year ended September 30, 2014, as
‘‘fiscal 2014.’’
Overview
We are a leading provider of professional technical and management support services for public and private clients around the world. We provide planning, consulting, architectural and engineering design, and program and construction management services for a broad range of projects, including highways, airports, bridges, mass transit systems, government and commercial buildings, water and wastewater facilities and power transmission and distribution. We also provide program and facilities management and maintenance, training, logistics, security and other support services, primarily for agencies of the U.S.
government.
Through our network of approximately 43,300 employees (as of September 30, 2014), we provide our services in a broad range of end markets, including the transportation, facilities, environmental, energy, water and government markets. According to Engineering News-Record’s (ENR’s) 2014 Design Survey, we are the largest general architectural and engineering design firm in the world, ranked by 2013 design revenue. In addition, we are ranked by ENR as the leading firm in a number of design end markets, including transportation and general building.
We were formed in 1980 as Ashland Technology Company, a Delaware corporation and a wholly owned subsidiary of Ashland, Inc., an oil and gas refining and distribution company. Since becoming independent of Ashland Inc., we have grown by a combination of organic growth and strategic mergers and acquisitions from approximately 3,300 employees and $387 million in revenue in fiscal 1991, the first full fiscal year of independent operations, to approximately 43,300 employees at September 30, 2014, and
$8.4 billion in revenue for fiscal 2014. We completed the initial public offering of our common stock in May 2007, and these shares are traded on the New York Stock Exchange.
As mentioned above, we have grown in part by strategic mergers and acquisitions. These acquisitions have included: URS Corporation, a leading provider of engineering, construction, and technical services for public agencies and private sector companies around the world, in October 2014; McNeil Technologies, Inc., a leading government national security and intelligence services firm, in August 2010;
and Tishman Construction Corporation, a leading provider of construction management services in the United States and the United Arab Emirates, in July 2010.
We offer our services through two business segments: Professional Technical Services and Management Support Services.
Professional Technical Services (PTS). Our PTS segment delivers planning, consulting, architectural and engineering design, and program and construction management services to commercial and government clients worldwide in major end markets such as transportation, facilities, environmental, energy, water and government. For example, we are providing investigation, design and construction supervision services for the relocation of the Shatin Sewage Treatment Works to caverns in Shatin, Hong Kong and advanced conceptual engineering and environmental reviews for the Azusa-to-Montclair segment of California’s Foothill Gold Line light-rail system and engineering and environmental
management services to support global energy infrastructure development for a number of large petroleum and mining companies. Our PTS segment contributed $7.6 billion, or 91%, of our fiscal 2014 revenue.
Management Support Services (MSS). Our MSS segment provides program and facilities management and maintenance, training, logistics, consulting, technical assistance and systems integration services, primarily for agencies of the U.S. government. For example, we oversee remote field experiments, multiple laboratory operations, waste management systems, and the design and fabrication of electronic, mechanical and structural systems at the U.S. Department of Energy’s Nevada Test Site. Our MSS segment contributed $0.7 billion, or 9%, of our fiscal 2014 revenue.
Our Business Strategy
Our business strategy focuses on leveraging our competitive strengths, leadership positions in our core markets, and client relationships to opportunistically enter new and emerging markets and geographies.
We have created an integrated delivery platform with superior capabilities to design, build, finance and operate infrastructure assets around the world. Key elements of our strategy include:
Expand our long-standing client relationships and provide our clients with a broad range of services We have long-standing relationships with a number of large corporations, public and private institutions and government agencies worldwide. We will continue to focus on client satisfaction along with opportunities to sell a greater range of services to clients and deliver full-service solutions for their needs.
For example, as our environmental business has grown, we have provided environmental services for transportation and other infrastructure projects where such services have in the past been subcontracted to third parties.
By integrating and providing a broad range of services, we believe we deliver maximum value to our clients at competitive costs. Also, by coordinating and consolidating our knowledge base, we believe we have the ability to export our leading edge technical skills to any region in the world in which our clients may need them.
We also have formed AECOM Global Fund I, L.P. (AECOM Capital), an investment fund to invest in public-private partnership (P3) and private-sector real estate projects for which we provide a fully integrated solution that includes equity capital, design, engineering and construction services. In addition, we leverage our practical knowledge of P3s and other forms of alternative delivery to enable clients to fund their projects without direct investment by AECOM.
Capitalize on opportunities in our core markets
We intend to leverage our leading positions in the transportation, facilities, environmental, energy, water and government markets to continue to expand our services and revenue. We believe that the need for infrastructure upgrades, environmental management and government outsourcing of support services, among other things, will result in continued opportunities in our core markets. With our track record and our global resources, we believe we are well positioned to compete for projects in these markets.
Continue to pursue our balanced capital allocation strategy
We intend to pursue a balanced capital allocation strategy that includes acquisitions. This approach has served us well as we have strengthened and diversified our leadership positions geographically, technically and across end markets. We believe that the trend towards consolidation in our industry will continue to produce candidates that align with our acquisition strategy. Also, as previously mentioned in our description of services, we have formed AECOM Capital, an investment fund to invest in public-private partnership and private-sector real estate projects for which we can potentially provide a fully integrated solution that includes equity capital, design, engineering and construction services.
Strengthen and support human capital
Our experienced employees and management team are our most valuable resources. Attracting and retaining key personnel has been, and will remain, critical to our success. We will continue to focus on providing our personnel with training and other personal and professional growth opportunities, performance-based incentives, opportunities for stock ownership and other competitive benefits in order to strengthen and support our human capital base. We believe that our employee stock ownership and other programs align the interests of our personnel with those of our clients and stockholders.
Our Business Segments
The following table sets forth the revenue attributable to our business segments for the periods indicated(1):
Year-Ended September 30, (in millions)
2014 2013 2012
Professional Technical Services (PTS) . . . $7,609.9 $7,242.9 $7,276.9 Management Support Services (MSS) . . . 746.9 910.6 941.3 Total . . . $8,356.8 $8,153.5 $8,218.2
Our Professional Technical Services Segment
Our PTS segment comprises a broad array of services, generally provided on a fee-for-service basis.
These services include planning, consulting, architectural and engineering design, program management and construction management for industrial, commercial, institutional and government clients worldwide.
For each of these services, our technical expertise includes civil, structural, process, mechanical, geotechnical systems and electrical engineering, architectural, landscape and interior design, urban and regional planning, project economics, cost consulting and environmental, health and safety work.
With our technical and management expertise, we are able to provide our clients a broad spectrum of services. For example, within our environmental management service offerings, we provide remediation, regulatory compliance planning and management, environmental modeling, environmental impact assessment and environmental permitting for major capital/infrastructure projects.
Our services may be sequenced over multiple phases. For example, in the area of program management and construction management services, our work for a client may begin with a small consulting or planning contract, and may later develop into an overall management role for the project or a series of projects, which we refer to as a program. Program and construction management contracts typically employ a staff of 10 to more than 100 and, in many cases, operate as an outsourcing arrangement with our staff located at the project site. For example, since 1990, we have been managing renovation work at the Pentagon for the U.S. Department of Defense. Other examples include our construction management services for One World Trade Center, the tallest building in the Western Hemisphere, and program management services for Crossrail, the largest addition to the transit system in London and southeast England in half a century.
(1) For additional financial information by segment, see Note 21 in the notes to our consolidated financial statements.
We provide the services in our PTS segment both directly and through joint ventures or similar partner arrangements to the following key end markets:
Transportation.
• Transit and Rail. Projects include light rail, heavy rail (including high-speed, commuter and freight) and multimodal transit projects. For example, we have provided engineering design services for the new World Trade Center Terminal for PATH and the Second Avenue Subway (8.5-mile rail route and 16 stations) in New York City, the Ma On Shan Rail (7-mile elevated railway) in Hong Kong, and Crossrail (74-mile railway) in the United Kingdom. We also are providing design services as part of a consortium that will construct the largest portion of the Riyadh metro system in Saudi Arabia, one of the largest urban infrastructure projects in the world.
• Marine, Ports and Harbors. Projects include wharf facilities and container port facilities for private and public port operators. For example, we have provided marine design and engineering services for container facilities in Hong Kong, the ports of Los Angeles, Long Beach, New York and New Jersey, the new $7 billion Doha Port project in Qatar and waterfront transshipment facilities for oil and liquid natural gas.
• Highways, Bridges and Tunnels. Projects include interstate, primary and secondary urban and rural highway systems and bridge projects. For example, we have provided engineering services for the SH-130 Toll Road (49-mile ‘‘greenfield’’ highway project) in Austin, Texas, the Sydney Orbital Bypass (39 kilometer highway) in Sydney, Australia and the Sutong Bridge in China, which crosses the Yangtze River and was the world’s longest cable-stayed bridge at the time of its completion. We also have provided mechanical, structural and environmental planning for Singapore’s new North-South Expressway.
• Aviation. Projects include landside terminal and airside facilities and runways as well as taxiways.
For example, we have provided program management services to a number of major U.S. airports, including O’Hare International in Chicago, Los Angeles International, John F. Kennedy and La Guardia in New York City, Reagan National and Dulles International in Washington, D.C., and Miami International. We also have provided services to airports in Hong Kong, London, the United Arab Emirates, Saudi Arabia, Cyprus and Qatar.
Facilities.
• Government. Projects include our emergency response services for the U.S. Department of Homeland Security, including the Federal Emergency Management Agency and engineering and program management services for agencies of the Department of Defense. We also provide architectural and engineering services for several national laboratories, including the laboratories at Hanford, Washington and Los Alamos, New Mexico.
• Industrial. Projects include industrial facilities for a variety of niche end markets such as manufacturing, distribution, aviation, aerospace, communications, media, pharmaceuticals, renewable energy, chemical, and food and beverage facilities.
• Urban Master Planning/Design. Projects include design services, landscape architecture, general policy consulting and environmental planning projects for a variety of government, institutional and private sector clients. For example, we have provided planning and consulting services for the Olympic Games sites in Atlanta, Sydney, Beijing, Salt Lake City, London, Rio de Janeiro and Tokyo. We are providing strategic planning and master planning services for new cities and major mixed use developments in India, China, Southeast Asia, the Middle East, North Africa, the United Kingdom and the United States.
• Commercial and Leisure Facilities. Projects include corporate headquarters, high-rise office towers, historic buildings, hotels, leisure, sports and entertainment facilities and corporate campuses. For example, we provided architecture interior design, structural engineering and cost-estimating services for the West Stadium Center of Bill Snyder Family Stadium at Kansas State University, design services for Barclays Center Arena in Brooklyn and building services, engineering, architectural lighting, advanced modeling, infrastructure and utilities engineering and advanced security for the headquarters of the British Broadcasting Company in London.
• Educational. Projects include engineering services for college and university campuses, including the new Kennedy-King College in Chicago, Illinois. We also have undertaken assignments for Oxford University in the United Kingdom, Pomona College and Loyola Marymount University in California.
• Health Care. Projects include design services for the Mayo Clinic Gonda Building in Rochester, Minnesota, University Hospital in Dubai Healthcare City and the Samsung Cancer Center in Seoul, Korea. We also have undertaken assignments for the Veterans Affairs Medical Center in Orlando, Florida, the Minneapolis campus of Children’s Hospitals and Clinics of Minnesota, the Princess Grace Hospital in Monaco, and a major hospital complex in the Hong Kong Hospital Authority’s West Kowloon Cluster.
• Correctional. Projects include the planning, design, and construction of detention and correction facilities throughout the world. For example, we provided construction management services for the construction of the California State Prison—Kern County Delano II, justice design and security consulting services for a multi-custody correctional complex for the Sultanate of Oman, Royal Police Force, architecture and engineering services for the Coleman Federal Correctional Complex in Florida and architecture services for the Grayville, Illinois Maximum Security Correctional Center.
Environmental.
• Water and Wastewater. Projects include treatment facilities as well as supply, distribution and collection systems, stormwater management, desalinization, and other water re-use technologies for metropolitan governments. We have provided services to the Metropolitan Water Reclamation District of Greater Chicago’s Calumet and Stickney wastewater treatment plants, two of the largest such plants in the world. Currently, we are working with New York City on the Bowery Bay facility reconstruction, and have had a major role in Hong Kong’s Harbor Area Treatment Scheme for Victoria Harbor.
• Environmental Management. Projects include remediation, waste handling, testing and monitoring of environmental conditions and environmental construction management for private sector clients.
For example, we have provided environmental remediation, restoration of damaged wetlands, and services associated with reduction of greenhouse gas emissions for large multinational corporations, and we also have provided permitting services for pipeline projects for major energy companies.
• Water Resources. Projects include regional-scale floodplain mapping and analysis for public agencies, along with the analysis and development of protected groundwater resources for companies in the bottled water industry.
Energy/Power.
• Demand Side Management. Projects include energy efficient systems for public K-12 schools and universities, health care facilities, and courthouses and other public buildings, as well as energy conservation systems for utilities.
• Transmission and Distribution. Projects include power stations and electric transmissions and distribution and co-generation systems, including enhanced electrical power generation in Stung Treng, Cambodia, as well as transmission in remote sections of Ontario, Canada and New Zealand.
These projects utilize a wide range of services that include consulting, forecasting and surveying to detailed engineering design and construction management.
• Alternative/Renewable Energy. Projects include production facilities such as ethanol plants, wind farms and micro hydropower and geothermal subsections of regional power grids. We typically provide site selection and permitting, engineering, procurement and construction management and related services.
• Hydropower/Dams. Projects include hydroelectric power stations, dams, spillways, and flood control systems including the Song Ba Ha Hydropower Project in Vietnam; the Pine Brook Dam in Boulder County, Colorado; and the Peribonka Hydroelectric Power Plant in Quebec, Canada.
• Solar. Projects include performing environmental work for the solar photovoltaic Brockton Brightfield project in New England, and environmental permitting services for the California Energy Commission to permit the development of a 250 MW solar thermal power plant in the Mojave Desert of California.
Our Management Support Services Segment
Through our MSS segment, we offer program and facilities management and maintenance, training, logistics, consulting, technical assistance and systems integration services, primarily for agencies of the U.S.
government.
We provide a wide array of services in our MSS segment, both directly and through joint ventures or similar partner arrangements, including:
Installation, Operations and Maintenance. Projects include Department of Defense and Department of Energy installations where we provide comprehensive services for the operation and maintenance of complex government installations, including military bases, test ranges and equipment. We have undertaken assignments in this category in the Middle East and the United States. We also provide services for the operations and maintenance of the Department of Energy’s Nevada Test Site.
Logistics. Projects include logistics support services for a number of Department of Defense agencies and defense prime contractors focused on developing and managing integrated supply and distribution networks. We oversee warehousing, packaging, delivery and traffic management for the distribution of government equipment and materials.
Training. Projects include training applications in live, virtual and simulation training environments.
We have conducted training at the U.S. Army’s Center for Security Training in Maryland for law enforcement and military personnel. We have also supported the training of international police officers and peacekeepers for deployment in various locations around the world in the areas of maintaining electronics and communications equipment.
Systems Support. Projects cover a diverse set of operational and support systems for the maintenance, operation and modernization of Department of Defense and Department of Energy installations. Our services in this area range from information technology and communications to life cycle optimization and engineering, including environmental management services. Through projects such as our joint venture operation at the Nevada Test Site, our team is responsible for facility and infrastructure support for critical missions of the U.S. government in its nonproliferation efforts, emergency response readiness, and force support and sustainment. Enterprise network operations and information systems support, including remote location engineering and operation in classified environments, are also specialized services we provide.
Technical Personnel Placement. Projects include the placement of personnel in key functional areas of military and other government agencies, as these entities continue to outsource critical services to commercial entities. We provide systems, processes and personnel in support of the Department of Justice’s management of forfeited assets recovered by law enforcement agencies. We also support the Department of State in its enforcement programs by recruiting, training and supporting police officers for international and homeland security missions.
Field Services. Projects include maintaining, modifying and overhauling ground vehicles, armored carriers and associated support equipment both within and outside of the United States under contracts with the Department of Defense. We also maintain and repair telecommunications systems for military and civilian entities.
Our Clients
Our clients consist primarily of national, state, regional and local governments, public and private institutions and major corporations. The following table sets forth our total revenue attributable to these categories of clients for each of the periods indicated:
Year Ended September 30, ($ in millions)
2014 2013 2012
U.S. Federal Government
PTS . . . $ 514.4 6% $ 550.0 7% $ 548.7 7%
MSS . . . 734.9 9 903.2 11 931.3 11 U.S. State and Local Governments . . . 1,390.2 17 1,485.4 18 1,454.4 18 Non-U.S. Governments . . . 2,030.2 24 1,911.5 23 2,006.4 24 Subtotal Governments . . . 4,669.7 56 4,850.1 59 4,940.8 60 Private Entities (worldwide) . . . 3,687.1 44 3,303.4 41 3,277.4 40
Total . . . $8,356.8 100% $8,153.5 100% $8,218.2 100%
Other than the U.S. federal government, no single client accounted for 10% or more of our revenue in any of the past five fiscal years. Approximately 15%, 18% and 18% of our revenue was derived through direct contracts with agencies of the U.S. federal government in the years ended September 30, 2014, 2013 and 2012, respectively. One of these contracts accounted for approximately 3%, 4% and 4% of our revenue in the years ended September 30, 2014, 2013 and 2012, respectively. The work attributed to the U.S.
federal government includes our work for the Department of Defense, Department of Energy, Department of Justice and the Department of Homeland Security.
Contracts
The price provisions of the contracts we undertake can be grouped into two broad categories:
cost-reimbursable contracts and fixed-price contracts. The majority of our contracts fall under the category of cost-reimbursable contracts, which we believe are generally less subject to loss than fixed-price contracts. As detailed below, our fixed-price contracts relate primarily to design and construction management contracts where we do not self-perform or take the risk of construction.
Cost-Reimbursable Contracts
Cost-reimbursable contracts consist of two similar contract types: cost-plus and time and material.
Cost-Plus. We enter into two major types of cost-plus contracts:
Cost-Plus Fixed Fee. Under cost-plus fixed fee contracts, we charge clients for our costs, including both direct and indirect costs, plus a fixed negotiated fee. The total estimated cost plus the fixed negotiated fee represents the total contract value. We recognize revenue based on the actual labor and other direct costs incurred, plus the portion of the fixed fee earned to date.
Cost-Plus Fixed Rate. Under cost-plus fixed rate contracts, we charge clients for our direct and indirect costs based upon a negotiated rate. We recognize revenue based on the actual total costs expended and the applicable fixed rate.
Certain cost-plus contracts provide for award fees or a penalty based on performance criteria in lieu of a fixed fee or fixed rate. Other contracts include a base fee component plus a performance-based award fee. In addition, we may share award fees with subcontractors. We record accruals for fee-sharing as fees are earned. We generally recognize revenue to the extent of costs actually incurred plus a proportionate amount of the fee expected to be earned. We take the award fee or penalty on contracts into consideration when estimating revenue and profit rates, and record revenue related to the award fees when there is sufficient information to assess anticipated contract performance. On contracts that represent higher than normal risk or technical difficulty, we may defer all award fees until an award fee letter is received. Once an award fee letter is received, the estimated or accrued fees are adjusted to the actual award amount.
Certain cost-plus contracts provide for incentive fees based on performance against contractual milestones. The amount of the incentive fees varies, depending on whether we achieve above, at, or below target results. We originally recognize revenue on these contracts based upon expected results. These estimates are revised when necessary based upon additional information that becomes available as the contract progresses.
Time and Material. Time and material contracts are common for smaller scale engineering and consulting services. Under these types of contracts, we negotiate hourly billing rates and charge our clients based upon actual hours expended on a project. Unlike cost-plus contracts, however, there is no predetermined fee. In addition, any direct project expenditures are passed through to the client and are reimbursed. These contracts may have a fixed-price element in the form of not-to-exceed or guaranteed maximum price provisions.
For fiscal 2014, 2013 and 2012, cost-reimbursable contracts represented approximately 52%, 58% and 53%, respectively, of our total revenue, consisting of cost-plus contracts and time and material contracts as follows:
Year Ended September 30, 2014 2013 2012
Cost-plus contracts . . . 15% 17% 18%
Time and materials contracts . . . 37 41 35 Total . . . 52% 58% 53%
Fixed-Price Contracts
There are typically two types of fixed-price contracts. The first and more common type, lump-sum, involves performing all of the work under the contract for a specified lump-sum fee. Lump-sum contracts are typically subject to price adjustments if the scope of the project changes or unforeseen conditions arise.
In such cases, we will submit formal requests for adjustment of the lump sum via formal change orders or contract amendments. The second type, fixed-unit price, involves performing an estimated number of units
of work at an agreed price per unit, with the total payment under the contract determined by the actual number of units delivered.
Many of our fixed-price contracts are negotiated and arise in the design of projects with a specified scope. Fixed-price contracts often arise in the areas of construction management and design-build services.
Construction management services are typically in the form of general administrative oversight (in which we do not assume responsibility for construction means and methods and which is on a cost-reimbursable basis). Under our design-build projects, we are typically responsible for the design of a facility with the fixed contract price negotiated after we have had the opportunity to secure specific bids from various subcontractors (including the contractor that will be primarily responsible for all construction risks) and add a contingency fee.
We typically attempt to mitigate the risks of fixed-price design-build contracts by contracting to complete the projects based on our design as opposed to a third party’s design, by not self-performing construction (except for limited environmental tasks), by not guaranteeing new or untested processes or technologies and by working only with experienced subcontractors with sufficient bonding capacity.
Some of our fixed-price contracts require us to provide performance bonds or parent company guarantees to assure our clients that their project will be completed in accordance with the terms of the contracts. In such cases, we typically require our primary subcontractors to provide similar bonds and guarantees and to be adequately insured, and we flow down the terms and conditions set forth in our agreement on to our subcontractors.
For fiscal 2014, 2013 and 2012, fixed-price contracts represented approximately 48%, 42% and 47%, respectively, of our total revenue. There may be risks associated with completing these projects profitably if we are not able to perform our professional services for the amount of the fixed fee. However, we attempt to mitigate these risks as described above.
Joint Ventures
Some of our larger contracts may operate under joint ventures or other arrangements under which we team with other reputable companies, typically companies with which we have worked for many years. This is often done where the scale of the project dictates such an arrangement or when we want to strengthen either our market position or our technical skills.
Backlog
Backlog is expressed in terms of gross revenue and therefore may include significant estimated amounts of third party, or pass-through costs to subcontractors and other parties. Our total backlog comprises contracted backlog and awarded backlog. Our contracted backlog includes revenue we expect to record in the future from signed contracts, and in the case of a public client, where the project has been funded. Our awarded backlog includes revenue we expect to record in the future where we have been awarded the work, but the contractual agreement has not yet been signed. For non-government contracts, our backlog includes future revenue at contract rates, excluding contract renewals or extensions that are at the discretion of the client. For contracts with a not-to-exceed maximum amount, we include revenue from such contracts in backlog to the extent of the remaining estimated amount. We calculate backlog without regard to possible project reductions or expansions or potential cancellations until such changes or cancellations occur. No assurance can be given that we will ultimately realize our full backlog. Backlog fluctuates due to the timing of when contracts are awarded and contracted and when contract revenue is recognized. Many of our contracts require us to provide services over more than one year. Our backlog for the year ended September 30, 2014, increased $8.5 billion, or 52%, to $25.1 billion as compared to
$16.6 billion for the corresponding period last year.
The following summarizes contracted and awarded backlog (in billions):
September 30,
2014 2013 2012
Contracted backlog:
PTS segment . . . $10.7 $ 8.4 $ 7.7 MSS segment . . . 0.7 0.4 0.8 Total contracted backlog . . . $11.4 $ 8.8 $ 8.5 Awarded backlog:
PTS segment . . . $12.4 $ 6.9 $ 6.3 MSS segment . . . 1.3 0.9 1.2 Total awarded backlog . . . $13.7 $ 7.8 $ 7.5 Total backlog:
PTS segment . . . $23.1 $15.3 $14.0 MSS segment . . . 2.0 1.3 2.0 Total backlog . . . $25.1 $16.6 $16.0
Competition
The professional technical and management support services markets we serve are highly fragmented, and we compete with a large number of regional, national and international companies. Certain of these competitors have greater financial and other resources than we do. Others are smaller and more specialized, and concentrate their resources in particular areas of expertise. The extent of our competition varies according to the particular markets and geographic area. The degree and type of competition we face is also influenced by the type and scope of a particular project. Our clients make competitive determinations based upon qualifications, experience, performance, reputation, price, technology, customer relationships and ability to provide the relevant services in a timely, safe and cost-efficient manner.
Seasonality
We experience seasonal trends in our business. Our revenue is typically higher in the last half of the fiscal year. The fourth quarter of our fiscal year (July 1 to September 30) is typically our strongest quarter.
We find that the U.S. federal government tends to authorize more work during the period preceding the end of our fiscal year, September 30. In addition, many U.S. state governments with fiscal years ending on June 30 tend to accelerate spending during their first quarter, when new funding becomes available.
Further, our construction management revenue typically increases during the high construction season of the summer months. Within the United States, as well as other parts of the world, our business generally benefits from milder weather conditions in our fiscal fourth quarter, which allows for more productivity from our on-site civil services. Our construction and project management services also typically expand during the high construction season of the summer months. The first quarter of our fiscal year (October 1 to December 31) is typically our weakest quarter. The harsher weather conditions impact our ability to complete work in parts of North America and the holiday season schedule affects our productivity during this period. For these reasons, coupled with the number and significance of client contracts commenced and completed during a particular period, as well as the timing of expenses incurred for corporate initiatives, it is not unusual for us to experience seasonal changes or fluctuations in our quarterly operating results.
Insurance and Risk Management
We maintain insurance covering professional liability and claims involving bodily injury and property damage. We consider our present limits of coverage, deductibles, and reserves to be adequate. Wherever possible, we endeavor to eliminate or reduce the risk of loss on a project through the use of quality assurance/control, risk management, workplace safety and similar methods. A majority of our active operating subsidiaries are quality certified under ISO 9001:2000 or an equivalent standard, and we plan to continue to obtain certification where applicable. ISO 9001:2000 refers to international quality standards developed by the International Organization for Standardization, or ISO.
Risk management is an integral part of our project management approach and our project execution process. We have an Office of Risk Management that reviews and oversees the risk profile of our operations. Also, pursuant to our internal delegations of authority, we have a formal process whereby a group of senior members of our risk management team evaluate risk through internal risk analyses of higher-risk projects, contracts or other business decisions.
Regulation
We are regulated in a number of fields in which we operate. In the United States, we deal with numerous U.S. government agencies and entities, including branches of the Department of Defense, the Department of Energy, intelligence agencies and the Nuclear Regulatory Commission. When working with these and other U.S. government agencies and entities, we must comply with laws and regulations relating to the formation, administration and performance of contracts. These laws and regulations, among other things:
• require certification and disclosure of all cost or pricing data in connection with various contract negotiations;
• impose procurement regulations that define allowable and unallowable costs and otherwise govern our right to reimbursement under various cost-based U.S. government contracts; and
• restrict the use and dissemination of information classified for national security purposes and the exportation of certain products and technical data.
Internationally, we are subject to various government laws and regulations (including the U.S. Foreign Corrupt Practices Act, Arms Export Control Act, Department of Commerce Export and Anti Boycott Regulations, Proceeds of Crime Act, Office of Foreign Assets Control regulations, U.K. Bribery Act and other similar non-U.S. laws and regulations), local government regulations and procurement policies and practices and varying currency, political and economic risks.
To help ensure compliance with these laws and regulations, all of our employees are required to complete tailored ethics and other compliance training relevant to their position and our operations.
Compliance with federal, state, local and foreign laws enacted for the protection of the environment has to date had no significant effect on our capital expenditures, earnings, or competitive position. In the future, compliance with environmental laws could materially adversely affect us. We will continue to monitor the impact of such laws on our business and will develop appropriate compliance programs.
Personnel
Our principal asset is our employees. A large percentage of our employees have technical and professional backgrounds and undergraduate and/or advanced degrees. We believe that we attract and retain talented employees by offering them the opportunity to work on highly visible and technically challenging projects in a stable work environment. The tables below identify our personnel by segment and geographic region.
Personnel by Segment
As of September 30,
2014 2013 2012
Professional Technical Services . . . 38,600 38,600 37,100 Management Support Services . . . 4,200 6,500 9,300 Corporate . . . 500 400 400 Total . . . 43,300 45,500 46,800 Personnel by Geographic Region
As of September 30,
2014 2013 2012
Americas . . . 15,400 17,400 19,000 Europe . . . 6,200 5,500 5,200 Middle East . . . 9,200 10,300 10,500 Asia/Pacific . . . 12,500 12,300 12,100 Total . . . 43,300 45,500 46,800 Personnel by Segment and Geographic Region
As of September 30, 2014
PTS MSS Corporate Total
Americas . . . 13,400 1,500 500* 15,400 Europe . . . 6,200 — — 6,200 Middle East . . . 6,700 2,500 — 9,200 Asia/Pacific . . . 12,300 200 — 12,500 Total . . . 38,600 4,200 500* 43,300
* Includes individuals employed by foreign subsidiaries.
A portion of our employees are employed on a project-by-project basis to meet our contractual obligations, generally in connection with government projects in our MSS segment. We believe our employee relations are good.
Geographic Information
For financial geographic information, please refer to Note 21 to the notes to our consolidated financial statements found elsewhere in this Form 10-K.
Additional Information
Following the end of our fiscal 2014, on October 17, 2014, we completed the previously announced acquisition of URS Corporation (URS). URS is a leading provider of engineering, construction, and technical services for public agencies and private sector companies around the world. It offers a full range of program management; planning, design and engineering; systems engineering and technical assistance;
construction and construction management; operations and maintenance; management and operations;
information technology; and decommissioning and closure services. In particular, URS, with more than 50,000 employees in a network of offices in nearly 50 countries, provides services for federal, oil and gas, infrastructure, power, and industrial projects and programs. With the acquisition, we added additional capabilities in the energy, oil & gas, government services and construction sectors, enhancing our ability to provide integrated services to our clients.
The acquisition was completed pursuant to the terms of the Agreement and Plan of Merger, dated as of July 11, 2014, by and among AECOM, ACM Mountain I, LLC, a direct wholly-owned subsidiary of AECOM, AECOM Global II, LLC (formerly ACM Mountain II, LLC), a direct wholly-owned subsidiary of AECOM, and URS.
We paid a total consideration of approximately $2.3 billion in cash and issued approximately
$1.6 billion of AECOM common stock to the former stockholders and certain equity award holders of URS. In connection with the acquisition, we also assumed URS senior notes totaling $1.0 billion, and subsequently repaid in URS’s $0.6 billion 2011 term loan and $0.1 billion revolving line of credit.
In connection with the acquisition, we entered into a new credit agreement consisting of (i) a term loan A facility in an aggregate principal amount of $1.925 billion, (ii) a term loan B facility in an aggregate principal amount of $0.76 billion, (iii) a revolving credit facility in an aggregate principal amount of
$1.05 billion, and (iv) an incremental performance letter of credit facility in an aggregate principal amount of $500 million.
Because this report relates to a period prior to the consummation of the acquisition of URS, except as expressly otherwise noted, this report, including the discussion of our business above, does not give effect to the URS acquisition.
Available Information
The reports we file with the Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy materials, including any amendments, are available free of charge on our website at www.aecom.com. You may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. The SEC also maintains a web site (www.sec.gov) containing reports, proxy, and other information that we file with the SEC. Our Corporate Governance Guidelines and our Code of Ethics are available on our website at www.aecom.com under the ‘‘Investors’’ section. Copies of the information identified above may be obtained without charge from us by writing to AECOM Technology Corporation, 1999 Avenue of the Stars, Suite 2600, Los Angeles, California 90067, Attention: Corporate Secretary.
ITEM 1A. RISK FACTORS
We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could materially adversely affect our operations. The risks described below highlight some of the factors that have affected, and in the future could affect our operations. Additional risks we do not yet know of or that we currently think are immaterial may also affect our business operations. If any of the events or circumstances described in the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. The recent acquisition of URS exposes us to numerous additional risks and uncertainties that we have noted and described below.
We depend on long-term government contracts, some of which are only funded on an annual basis. If appropriations for funding are not made in subsequent years of a multiple-year contract, we may not be able to realize all of our anticipated revenue and profits from that project.
A substantial majority of our revenue is derived from contracts with agencies and departments of national, state and local governments. During fiscal 2014, 2013 and 2012, approximately 56%, 59% and 60%, respectively, of our revenue was derived from contracts with government entities.
Most government contracts are subject to the government’s budgetary approval process. Legislatures typically appropriate funds for a given program on a year-by-year basis, even though contract performance may take more than one year. In addition, public-supported financing such as state and local municipal
